Over the years, I have counseled people who were being hounded by collection agencies of credit card companies. These agencies have oftentimes employed obnoxious tactics. In a lot of situations also, people have already paid the principal obligation but they cannot cope with the never-ending interest charges.

In fairness to credit card companies, I think the problems oftentimes begin with people who do not know how to use their credit cards wisely. For some people (fresh out of college and newly employed), having a dozen or more credit cards is a status symbol. When these people go to a mall, their mindset is that of Gen. George Custer: “Charge!”If you want to know how to live a debt-free life, please surf to the website “Debt-Proof Living” by Mary Hunt. Mary's story of how she overcame the crushing burden of debts will surely inspire and help you.

Anyway, posted below are the facts and my discussion of the Macalinao ruling of the Supreme Court which provides relief for credit card holders.

BPI filed its case against Ileana Macalinao and her husband with the Metropolitan Trial Court of Makati City in 2004. It asked the couple to pay the amount of PhP 154,608.78 plus 3.25% finance charges and late payment charges equivalent to 6% of the amount due from February 29, 2004 and an amount equivalent to 25% of the total amount due as attorney’s fees, and of the cost of suit.

After going through the Regional Trial Court and the Court of Appeals, Macalinao appealed to the Supreme Court in 2006. The Court in its September 2009 decision penned by Justice Presbitero Velasco Jr. reiterated its ruling in numerous cases dating as far back as 1996 that the interest rate of 3% monthly or 36% per annum is excessive, iniquitous, unconscionable and exorbitant. Partially granting Macalinao’s petition, the Supreme Court reduced the interest rate to 1% monthly and the penalty charge to 1% monthly or a total of 2% per month or 24% per annum. Based on the reduced rate of interest, the Court ruled that Macalinao’s obligation to BPI amounted to only Php 112,309.52.

Implications of the Supreme Court ruling in Macalinao vs. BPI and previous cases[1] Did the Supreme Court order all credit card companies to reduce their interest rates?

No, it did not. Only the Central Bank or Congress can set or legislate interest rates. But in view of the Supreme Court ruling in numerous cases dating as far back as 1996 that interest rates of 3% per month and higher are excessive, the Central Bank or Congress should act accordingly.

[2] Can all holders of credit cards from whatever company benefit from the Macalinao ruling?

Yes. How? See [3] below.

[3] What to do if you are being sued by the credit card company

Upon receipt of the demand letter from the company or of the summons from the court, you should:

[A] Determine from your receipts or proof of payments if the computation of the outstanding principal obligation is correct. If not, then you should raise this issue of incorrect computation either in your reply to the demand letter or in your Answer to the complaint. (The problem in the Macalinao case was that she and her husband did not file their Answer and thus, the METC declared them in default).

[B]If the credit card company has imposed the 3% monthly interest or the penalty of 3% monthly, or both, then you should claim the benefit of the Supreme Court ruling in the Macalinao case and in previous casesdating as far back as 1996. Youshould state in your reply to the demand letter or in your Answer to the complaint that the Supreme Court has ruled that interest rates of 3% per month or higher are excessive, iniquitous, unconscionable and exorbitant. You should then ask the credit card companies for the recomputation of the total amount of interest in view of the Supreme Court ruling.

[C] Whether A or B above applies, you should indicate your willingness to pay and ask for the restructuring of the obligation, with the reduced interest rate based on the Macalinao ruling.

[D] What if the credit card company continues with the filing of the case despite the reply to the demand letter citing the Supreme Court ruling? Well, then, you have no choice but to file your Answer in court. This means of course that you have to retain the services of a lawyer and pay the lawyer’s fees. Besides claiming in your Answer the benefit of the Supreme Court ruling in the Macalinao case and related cases dating as far back as 1996, you can file a counterclaim for moral damages (harassment by the collection agencies) and actual damages (reimbursement of what you paid as lawyer’s fees), etc.

Note: If the value of the claim does not exceed Php 100,000.00 (excluding interest and costs), then the Small Claims Court has jurisdiction. No lawyers are necessary since the parties are allowed to appear for and by themselves. If efforts at settlement between the parties fail, the hearing shall proceed in an informal and expeditious manner and be terminated within one day. As of now however, not all towns and cities in the Philippines have Small Claims Court.

Can a person be charged criminally for non-payment of credit card bills?

A cardholder who abandons or surreptitiously leaves the place of employment, business or residence stated in his application or credit card, without informing the credit card company of the place where he could actually be found, if at the time of such abandonment or surreptitious leaving, the outstanding and unpaid balance is past due for at least ninety (90) days and is more than Ten thousand pesos (P10,000.00), shall be prima facie presumed to have used his credit card with intent to defraud.

The facts of the Macalinao vs. BPI case(G.R. No. 175490, promulgated on September 17, 2009, with Justice Presbitero Velasco Jr. as ponente):

Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the credit card facilities of the Bank of the Philippine Islands (BPI). Macalinao made some purchases using her credit card and defaulted in paying for the purchases. She subsequently received a letter dated January 5, 2004 from BPI, demanding payment of the amount of PhP 141,518.34.

[2]Terms and conditions of the use of the credit card

Under the “Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard”, the charges or balance of the obligation remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month and with an additional penalty fee equivalent to another 3% of the amount due for every month or a fraction of a month’s delay.

For failure of Macalinao to settle her obligations, BPI filed with the Metropolitan Trial Court (MeTC) of Makati City a complaint for a sum of money against her and her husband, Danilo SJ. Macalinao. This was raffled to Branch 66 of the MeTC and was docketed as Civil Case No. 84462 entitled Bank of the Philippine Islands vs. Spouses Ileana Dr. Macalinao and Danilo SJ. Macalinao.

[4]BPI’s claims for payment

In the complaint, BPI asked for the payment of the amount of one hundred fifty-four thousand six hundred eight pesos and seventy-eight centavos (PhP 154,608.78) plus 3.25% finance charges and late payment charges equivalent to 6% of the amount due from February 29, 2004 and an amount equivalent to 25% of the total amount due as attorney’s fees, and of the cost of suit.

[5]MeTC declares Macalinao in default for failure to file Answer

After the summons and a copy of the complaint were served upon Macalinao and her husband, they failed to file their Answer. Thus, BPI asked the court that judgment be rendered in accordance with Section 6 of the Rule on Summary Procedure. This was granted in an Order dated June 16, 2004. Thereafter, BPI submitted its documentary evidence.

[6] MeTC orders Macalinao to pay but reduces amount of interest

In its decision dated August 2, 2004, the MeTC ruled in favor of BPI and ordered Macalinao and her husband to pay the amount of PhP 141,518.34 plus interest and penalty charges of 2% per month (instead of the contractually stipulated rate of interest of 3%).

[7] On appeal, the Regional Trial Court affirms the MeTC decision

Macalinao and her husband then appealed to the Regional Trial Court (RTC) of Makati City. The RTC in its decision dated October 14, 2004 affirmed in toto (in whole) the decision of the MeTC and held:

In any event, the sum of P141,518.34 adjudged by the trial court appeared to be the result of a recomputation at the reduced rate of 2% per month. Note that the total amount sought by the plaintiff-appellee was P154,608.75 exclusive of finance charge of 3.25% per month and late payment charge of 6% per month.

[8]Upon review, the Court of Appeals modifies the computation of the principal obligation and pegs the interest rate at 1.5% monthly and the penalty charge 1.5% monthly (or a total of 3% monthly)

Unconvinced, Ileana Macalinao filed a petition for review with the Court of Appeals. (At this point in time, her husband had already died). The CA affirmed the decision of the RTC but modified the computation of the principal obligation and the rate of monthly interest and penalty charges. The CA pegged the interest rate at 1.5% monthly and the penalty charge 1.5% monthly (or a total of 3% monthly). The CA ruled:

WHEREFORE, the appealed decision is AFFIRMED but MODIFIED with respect to the total amount due and interest rate. Accordingly, petitioners are jointly and severally ordered to pay respondent Bank of the Philippine Islands the following:

1. The amount of One Hundred Twenty Six Thousand Seven Hundred Six Pesos and Seventy Centavos plus interest and penalty charges of 3% per month from January 5, 2004 until fully paid;2. P10,000.00 as and by way of attorney’s fees; and3. Cost of Suit.

[9] Macalinao appeals to the Supreme Court citing three errors of the CA

After Macalinao’s Motion for Reconsideration was denied by the CA, she appealed to the Supreme Court. In her appeal, Macalinao stated that the CA committed three errors, namely:

I. The reduction of interest rate, from 9.25% to 2%, should be upheld since the stipulated rate of interest was unconscionable and iniquitous, and thus illegal.

II. The Court of Appeals arbitrarily modified the reduced rate of interest from 2% to 3%, contrary to the tenor of its own decision.

III. The Court of Appeals, instead of proceeding with a recomputation, should have dismissed the case for failure of respondent BPI to prove the correct amount of petitioner’s obligation, or in the alternative, remanded the case to the lower court for respondent BPI to present proof of the correct amount thereof.

[10]Supreme Court rules that Macalinao should only pay only 1% monthly interest and 1% penalty charge

The Supreme Court ruled partially in favor of Macalinao. On the negative side, the Court refused to either dismiss or remand the case to the METC for recomputation of the correct amount. On the positive side, the Court modified the CA ruling:

Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.

In view of the ruling that only 1% monthly interest and 1% penalty charge can be applied to the beginning balance of PhP 94,843.70, the Court ruled that Macalinao’s obligation to BPI amounted to only Php 112,309.52.

The Supreme Court has ruled in numerous cases dating as far back as 1996 that the interest rate of 36% per annum is excessive, iniquitous, unconscionable and exorbitant:

Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has considered the interest rate of 36% per annum as excessive and unconscionable.

The stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets.

The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, it was also stated therein that respondent BPI shall impose an additional penalty charge of 3% per month. Pertinently, Article 1229 of the Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.

Previous Supreme Court rulings that 3% monthly interest is excessive

As stated above, the Supreme Court has already ruled in cases before its 2009 Macalinao vs. BPI decision that an interest rate of 3% monthly or 36% per annum is excessive, iniquitous, unconscionable and exorbitant. These cases are the following:

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